S&P says state not prepared to pay for retiree healthcare

A credit ratings agency is warning that states like Illinois could be pushed to raise taxes because lawmakers haven’t set aside money to pay for retiree healthcare costs.

S&P Global Ratings reported that total unfunded state liabilities that aren’t pensions have increased significantly for the third year in a row. The agency said this is largely due to states like Illinois under funding the issue.

State employees with at least 20 years of work qualify for state-sponsored retiree healthcare. Those premiums are covered by taxpayers. This is the retiree’s primary coverage when they’re eligible to retire as early as 55 with it becoming supplemental once they qualify for Medicare ten years after.

Ted Dabrowski, president of Wirepoints, said it’s a combination of that and the health care plans offered to state workers.

“If you work 20 years for the state, you get your retiree health insurance for free,” he said, referring to the state’s full coverage of retiree premiums.

Illinois is what’s known as a “paygo” state, meaning medical bills are paid as retirees incur them. The S&P report says this poses challenges to state budgets.

“The lack of a funded trust also exposes state budgets to medical claims volatility and demographic risk due to aging active populations,” according to the report..

By Dabrowski’s estimate, the state will owe $73 billion over the next 38 years.

“We’re going to have to reach into our budget for an ever-growing number and take money away from education, roads and healthcare,” Dabrowski said.

In 2014, the Illinois Supreme Court ruled that public retiree healthcare benefits, or how much a retiree pays for those benefits, cannot be diminished.

This level of taxpayer burden doesn’t account for local government healthcare costs, which the Governmental Accounting Standards Board estimated in 2008 to be $1.5 trillion.